Retiree COLAs: Is bigger always better?

Like when is the last time you took the family to vacation at the Not-So-Grand Canyon? We like it big.

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Big also factors into things like keeping up with inflation, known as cost-of-living adjustments — COLAs. They are provided to people who get Social Security benefits, federal civil service annuities and military retiree payments. When inflation goes up, as measured by the Labor Department’s Consumer Price Index, so does the January COLA.

But in recent years, COLAs, which in the past were sometimes double-digit payments, have declined. Politicians say it is because living costs have declined. That inflation is barely creeping upward. And that should be good. But not everybody’s happy.

This year, the (2012) COLA increase in January was “only” 1.7 percent. Before that, in part because of the recession, there were two years without any COLA. Inflation barely budged.

Normally by mid-October, people who get indexed to inflation COLAs know how much of an increase they will see in their January payments. Normally…

This year, however, the computation of the Consumer Price Index, which defines the amount of the COLA, was delayed by the government shutdown. But over the weekend non-federal experts predicted the 2014 raise would be something in the neighborhood of 1.5 percent. Even less than the COLA they got this year.

Many federal workers — in their third year of a freeze — would be happy with any kind of pay raise. Many who were hit by the furloughs would be happy with a full paycheck, if it arrived on time which in many cases it won’t.

But many federal-military-Social Security retirees are unhappy with the projected small COLA for 2014. They are grateful that living costs are down, but many wonder if the Labor Department is measuring the right things. Retirees point out that their health-insurance premiums (like those of working feds) have gone up each year. Modest increases in most plans, but up nevertheless.

They also say that the government doesn’t give enough weight to the increase in medical costs, which typically weigh heavier on older people. Many people agree that the current CPI (consumer price index) isn’t the right way to accurately track inflation. But unlike retirees, who think it underestimates inflation, the other critics think it overstates it by about 0.4 percent each year.

Many in Congress, and the Obama administration itself, favor using the so-called “chained CPI.” It’s as complicated as the other systems but the bottom line, backers say, it that it introduces reality into the process. Their favorite example is the price of steak. If it gets too high, they say, people will adjust and buy lower-priced cuts of meat. Or chicken. Or, as some retirees say, cat food instead of sirloin.

Once the shutdown/debt ceiling issues are settled (at least temporarily), Congress and the White House are going to look for ways to save money. High on their list of reforms is introduction of the chained CPI. Critics and backers say the same thing: That it would reduce each future COLA for retirees by about 0.4 percent. A little each year. A lot of money over time.

Today at 10 a.m. on our Your Turn radio show, Jessica Klement from the National Active and Retired Federal Employees will explain why NARFE is leading the fight against the chained COLA. She’ll also talk about the impact of the shutdown on retiree payments.

Later on the show, Federal Times senior writer Sean Reilly talks about impact of the shutdown on feds, and what’s next.

Listen if you can (1500 AM or online), and if you have questions email them to me at mcausey@federalnewsradio.com or call in during the show at (202) 465-3080. The show will be archived here.

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